Head-Module Title: Participation Bank in Turkey
Related Legal Regulations In Turkey
Generally six types of regulations seek to enhance the net social benfits of commercial banks services to the economy(1)safety and soundness regulation, (2)monetary policy regulation, (3)credit allocation regulation, (4)consumer protection regulation, (5)investor protection regulation and (6) entry and chartering regulation (Saunders & Cornett, Financial Markets and Institutions, 2004, p. 379). We will deal with some of these regulations in this study for Turkey.
Deposit banks, participation banks, development and investment banks, branches of foreign banks, financial holding firms in Turkey, The Banks Association of Turkey (BAT – Türkiye Bankalar Birliği), The Participation Banks Association of Turkey (PBAT – Türkiye Katılım Bankaları Birliği), Banking Regulation and Supervision Agency (BRSA – Bankacılık Düzenleme ve Denetleme Kurumu-BDDK), Savings Insurance Deposit Fund (SIDF – Tasarruf Mevduatı Sigorta Fonu-TMSF) and their activities are regulated by the mentioned Banking Act. With the condition that the provisions of the related law are also valid for the banks founded according to special acts, the provisions of the Banking Act are applied. In case of absence of related provisions in the special act, general provisions are applied.( Banking Act no. 5411, article 2)
Participation banks are supervised by Banking Regulation and Supervision Agency (BRSA). In 2004, the Uniform Chart of Account was formed for participation banks, and these institutions began bookkeeping as other banks, in accordance with the mentioned chart of account (Central Bank of Republic of Turkey, 2005).
Definitions Regarding Participation Banks in the Banking Act. In the 3rd article of the Banking Act no. 5411, there are important definitions showing differences and similarities between participation banks and other banks. According to these definitions, both deposit banks and participation banks consist two lower members of the higher definition of “Loan Institution”. There are also two banks associations defined in the Banking Act, one of which is the Participation Banks Association of Turkey, and other is the Banks Association of Turkey with a more widespread structuring.
The definition of “bank” in the Banking Act includes 3 types of banks. These are:
Deposit bank:Institutions operating mainly by accepting deposit and utilizing loan in accordance with the Act in the name and account of itself, and branches in Turkey of such foreign institutions,
Participation bank:Institutions operating mainly by collecting funds through special current accounts and participation accounts and utilizing loan in accordance with the Act in the name and account of itself, and branches in Turkey of such foreign institutions, and
Development and investment bank:Institutions operating mainly by utilizing loan rather than accepting deposit or participation funds, in accordance with the Act in the name and account of itself, and branches in Turkey of such foreign institutions.
Permission for Foundation or Branch and Office Establishment (Subsidiary) in Turkey. According to the 6th article of the Act no. 5411, the foundation of a bank in Turkey or the first branch establishment in Turkey of a foreign bank, is allowed with the condition that it is in accordance with the conditions proposed in the Act, and with decision taken through positive votes of at least 5 members of BRSA. Allowance applications and principles regarding to this allowance is determined by the regulations published by BRSA.
Conditions of Foundation.According to the 7th article of the Act, the main conditions for the foundation of a bank in Turkey are as follows:
a) It has to be founded as an incorporated company,
b) Stocks have to be issued in against cash reserve and all has be written in the title,
c) Founders has to have the qualities defined in the Act,
d) Board members has to have the qualities defined in the Act and to have professional experience in order to be able to realize planned operations,
e) Proposed subjects of operation have to be in accordance with planned structure of finance, management and organization,
f) Its issued capital free of every kind of collusion and in cash has to be at least 30 million New Turkish Lira,
g) Its founding charter has to be in accordance with provisions of the Act.
In addition, it has not so complex structure of organization and partnership which would prevent supervision, and plans regarding proposed operation objects and structures regarding internal organization have to be designed in a realist manner.
